The fiscal debacle: Government working as was truly intended?

Pres. Barack Obama and House Speaker John Boehner were at loggerheads during recent fiscal cliff showdown.

Is the fiscal cliff scenario a failure of our system of government or government functioning as intended?

One need not venture far these days to hear a fairly common assessment of the current state of affairs pertaining to government in the nation’s capital. Usually, references are made to a totally broken governing mechanism. Furthermore, the befuddled average citizen often lays the blame at the feet of both of the major political parties. He/she does so because from a thousand miles away the explanations as to why this or that action is taken by policymakers is simply too difficult to sort out.

Such a conclusion, however, is emblematic of a vast oversimplification. Indeed, it would be quite incorrect to surmise that we stumbled upon the “fiscal cliff” and the doomsday debt scenarios quite by accident — as if these hurdles evolved as by-products of mere economic uncertainty. Quite the contrary, these increasingly frightening crises points were created intentionally and they are indeed performing exactly as the policymakers who created them designed them to do. Conversely, in the absence of Congressional intent in the form of legislation, Dec. 31, 2012, would have been just another day.

Why then, are we experiencing all of the hand-wringing and emotional partisan brinkmanship seemingly on a continuing basis? A brief examination of three historic Congressional strategies should partially answer these questions. These three initiatives are the establishment of the “debt ceiling,” the sequester legislation and the “starving the beast” tax cuts in the early George W. Bush administration.

There is nothing in the U. S. Constitution that requires a formal establishment of a ceiling on the amount of the federal debt. As economist Alex Planes of The Motley Fool says, “There would be no fiscal cliff if there were no debt ceiling.” Indeed, there was no debt ceiling until it was included in the World War I era Second Liberty Bond Act of 1917. The intent of the Congressionally-established debt ceiling then, just as it is now, was to act as a brake on unbridled spending, and hence the incurring of debt. That first debt ceiling enabled the country to issue $11.5 billion in new debt, according to Planes.

Debt ceiling debates from the beginning have been highly rancorous, highlighting the differences in governing philosophies between the Republicans and Democrats. According to Jeanne Shahadi of CNN, the debt ceiling has been raised 74 times since March 1962, including 18 times during the Reagan administration alone.

Failure to raise the debt ceiling results in the ominous consequences of rendering the United States government unable to pay its debt. Seemingly, that fact alone has become insufficient to control the level of spending so the “sequester” was devised as a means of automatically triggering cuts on the expenditure side of the ledger. The current mandatory sequester legislation was put in place in the Budget Control Act of 2011. The sequester was agreed to in a compromise with Congress enabling the debt ceiling to be raised following the most recent bout of partisan brinkmanship. It was this sequester legislation that came due on Dec. 31 with its package of draconian budget cuts, including major cuts in defense funding.

Nevertheless, the question remains as to how we got to this point in the first place. Late in the administration of Democratic President Bill Clinton, and a Congress with a Republican majority in both the House and the Senate, the federal government enjoyed a budget surplus for the first time in decades. For most, this was a pleasant place to be, but for those who had spent a professional lifetime passionately trying to minimize the size of government the surpluses posed a significant dilemma. How can one make a case that we cannot afford our current size of government when we are paying all of the bills and there is money in the bank?

Bruce Bartlett, a senior policy advisor in the Reagan and George H. W. Bush administrations, attributes the idea of “starving the beast” to Fed chairman Alan Greenspan as a result of his testimony before the Senate Finance Committee in 1978. Greenspan stated that “the purpose of any tax cut… is to reduce the momentum of expenditure by restraining the amount of revenues available.” Thus, the Bush tax cuts were designed to move government from a budgetary surplus to a situation where cuts in spending were unavoidable.

The tax cuts have indeed lowered revenues deeply into deficit territory primarily because expenditures continued to mount. These expenditures were driven by, among other things, the unexpected necessity of fighting two wars in the Middle East.

So we have now arrived at the site of a perfect storm. The beast of government has been starved of revenues just as intended by policy makers. The self-imposed debt ceiling looms as a dark cloud on the immediate horizon. The pre-designed onerous program cuts contained in the sequester created by the 2011 legislation hang over our head like the proverbial “sword of Damocles.”

All of these very serious conditions exist by historic Congressional design. The solution lies in finding a middle ground that has, for the most part, eluded Republicans and Democrats for decades. That middle ground involves determining the proper role and size of government in the lives of citizens. The financial stakes are perhaps higher than they have ever been in history.

BEFORE YOU GO…

… we’d like to ask for your support. More people are reading the Mississippi Business Journal than ever before, but advertising revenues for all conventional media are falling fast. Unlike many, we do not use a pay wall, because we want to continue providing Mississippi’s most comprehensive business news each and every day. But that takes time, money and hard work. We do it because it is important to us … and equally important to you, if you value the flow of trustworthy news and information which have always kept America strong and free for more than 200 years.

If those who read our content will help fund it, we can continue to bring you the very best in news and information. Please consider joining us as a valued member, or if you prefer, make a one-time contribution.